Trade and Commercial Law Assessment - Honduras - Economic ...

More documents

Recommendations

Info

TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004HONDURASVI.COLLATERALA. INTRODUCTIONHonduras has legal mechanisms capable of creating security interests in the various movablegoods that provide the bulk of the world’s wealth today. However, these mechanisms have notbeen developed in practice and use. The laws also lack the refinements that drive modern securedtransaction schemes. Specifically, the system lacks provisions that would (a) permitsecuritization arrangements, or loans secured by a set of debt or title instruments (such asmortgages, to cite a common example); (b) enable registration of a summary reference form thatwould fix the priority of a given creditor for a series of transactions secured against the movableassets of a given debtor; (c) allow purchase money security interests to preempt earlier securityinterests; or (d) permit buyers in the ordinary course of business to take collateral free of acreditor’s guaranty.Moreover, the legal procedures for execution in the case of default, while relatively expeditious,are out of step with recent developments in this area. Even within the limited possibilitiespresented by Honduran laws, the risk-averse attitude of lending institutions has stunted the creditmarket in Honduras, although banks and other credit institutions reported enjoying liquidity offunds that otherwise might support a vigorous supply of credit for SMEs. Inexplicably, given thelaws and the liquidity, interest rates run extremely high in Honduras, in the neighborhood of 35percent to 40 percent, and higher.Contributing significantly to the lack of an active market in secured credit, the Honduran courtsneed significant improvements, particularly related to sophisticated commercial operations.Thus, although the letter of Honduran laws and procedures might appear to support collateralguaranties for credit, in practice there is insufficient credit to support commercial growth. Thelack of available credit represents a serious barrier to more dynamic development in Honduras. 36Financing in Honduras relies today, on mortgage-based loans or loans guaranteed by individualswith immovable collateral to back up their guaranty. 37 This is true of agricultural productionloans and other loans in which collateral guaranties may be used as backup security, but not asthe basis for the loan—a phenomenon not uncommon in the CAFTA region as a whole. With theexception of automobile loans to consumers, there is virtually no private credit market inHonduras that relies on collateral guaranties. The lenders who occupy the vacuum left by thispractice tend to be public foundations and business associations that do not have lendingphilosophies that support and encourage development and growth. Rather, such last-resort3637Illustrating how lack of credit inhibits growth, a medium-sized business (a manufacturer, wholesaler, andexporter of non-patent drugs and food supplements) indicated it did not have a line of credit, stating (a) thatinterest rates were too high to make feasible anything other than short-term credit to meet occasional extremesituations, and (b) that guaranty requirements were so stringent that any loan would have correlated to only asmall percentage of the movable assets. The owner of the business estimated that its sales would have been atleast four to five times more if the company had access to a line of credit charging a reasonable rate of intereston a loan amount equal to 80 percent or more of the movable assets of the enterprise.Two separate interviewees mentioned a popular saying in Honduras, that between borrower and lender, “Amorse escribe con ‘h’ de hipoteca.” That is, “Love is spelled with an ‘m’ for mortgage.”VI-1
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004HONDURASlenders tend to provide holdover loans that permit borrowers to survive at their current levels ofoperation, but not to expand.Honduras has begun meaningful reform in the laws controlling collateral guaranties, but there issome doubt about whether the reform will be permitted to take effect. Through the Property Law,Ley de Propiedad (LdP), the legislature passed a sweeping reform of the commercial and otherregistries, removing them from the administration of the Supreme Court and placing them in anew Institute of Registries. The legislature also provided for the use of new electronic land-titleregistration and a national cadastre. Although all agree that the existing registry suffers fromcorruption, delay, and inaccessibility, vested interests threatened by the reforms have mountedconstitutional challenges to the new laws, which knowledgeable observers believe may well besustained by the Honduran Supreme Court. 38 Nonetheless, the current administration is draftinga reform law for collateral guaranties against movable property with the goal of having it in placewithin a year. Although the presidential team manifests a sense of urgency and commitmentconcerning these reforms, most Hondurans seem indifferent, and some are even resistant toreform. Interviews conducted for this assessment revealed a common perception that the currentsystem does not require urgent reform.Honduras has an inefficient credit market despite the presence of factors that could support adynamic, efficient market. Much of the problem seems to stem from custom and practice and theattitudes that perpetuate them. At least at the executive level, and perhaps at the legislative level,Honduras seems prepared to push for reforms such as those embodied in model laws such as theOrganization of American States (OAS) Model Law of Secured Transactions (2002), the ModelInter-American Rules for Electronic Documents and Signatures (2002), and other uniform lawsfrom United Nations Commission on International Trade Law (UNCITRAL) and United NationsInternational Institute for the Unification of Private Law (UNIDROIT) that might harmonize thelaws of the region and even the hemisphere thereby greatly simplifying credit and trade on aregional, hemispheric, and global basis. Whether the executive initiative can bring about reformsin both the letter of the law and its application remains to be seen, but such reforms should beencouraged in every possible way.B. LEGAL FRAMEWORK1. Honduras’ Substantive Law on Garantías Reales MobiliariasHonduras enjoys a well-drafted and relatively modern Commercial Code (Código de ComercioAdopted in 1950, the drafters of the Commercial Code included the noted Spanish expatriateMexican commercial jurist Joaquín Rodríguez y Rodríguez and the distinguished Honduranjurist Roberto Ramírez. The Commercial Code does not include a regime for collateralguaranties that could support a modern credit system. In addition, while the Commercial Code is54 years old, the Honduran regime for secured transactions in movable property—genericallyknown in the law as garantías reales mobiliarias—also depends on provisions found in suchfundamental sources as the Civil Code (Código Civil, or “CC”) and the Code of Procedures(Código de Procedimientos, or “CdPro”), which were promulgated in 1906 as a set.38 Please note, at the time of this assessment, none of the cases had been decided regarding the constitutionality ofthe law.VI-2
Page 1 and 2: TRADE AND COMMERCIALLAW ASSESSMENT
Page 3 and 4: TRADE AND COMMERCIAL LAW ASSESSMENT
Page 45: TRADE AND COMMERCIAL LAW ASSESSMENT
Page 97 and 98:
TRADE AND COMMERCIAL LAW ASSESSMENT
Page 99 and 100:
Page 101 and 102:
Page 103 and 104:
Page 105 and 106:
Page 107 and 108:
Page 109 and 110:
Page 111 and 112:
Page 113 and 114:
Page 115 and 116:
Page 117 and 118:
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
Page 129 and 130:
Page 131 and 132:
Page 133 and 134:
Page 135 and 136:
Page 137 and 138:
Page 139 and 140:
Page 141 and 142:
Page 143 and 144:
Page 145 and 146:
Page 147 and 148:
Page 149 and 150:
Page 151 and 152:
Page 153 and 154:
Page 155 and 156:
Page 157 and 158:
Page 159 and 160:
Page 161 and 162:
THRADE AND COMMERCIAL LAW ASSESSMEN
Page 163 and 164:
Page 165 and 166:
Page 167 and 168:
show all

Trade and Commercial Law Assessment - Honduras - Economic ...

Create successful ePaper yourself

Delete template?

Save as template?